Question 1

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A U.S. Treasury Bill pays to the holder a one-time payment of $10,000 in 13 weeks. Which of the following comes closest to the price of this bill if the required rate of return is 5%?

Select one:

a. $9,902.43

b. $9,878.77

c. $9,855.39

d. $9,950.62

e. $9,926.38

Question 2

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A bond that was first issued exactly two years ago today and now has 15 years till maturity has a coupon rate of 7.5% and returns the face value of $1,000 at maturity. Now, two years later, the yield to maturity on the bond is 6.75%. Which of the following comes closest to the price of the bond?

Select one:

a. $1,043

b. $975

c. $1,000

d. $1,069

e. $1,015

Question 3

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Troy is interested in buying a particular stock whose current dividend is $1.35, and whose dividend is expected to increase at a rate of 5% per year for two years, and then at 2.5% per year thereafter forever. Which of the following comes closest to an estimate of the price per share of the stock if the required rate of return is 13.40%.

Select one:

a. $40.50

b. $15.34

c. $16.88

d. $17.03

e. $13.29

Question 4

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You are trying to price two bonds that have the same maturity and par value but different coupon rates. Both bonds mature in 8 years and at maturity both bonds return the par value of $1,000. Bond A has a coupon rate of 3% and a yield to maturity of 3%. Bond B has a coupon rate of 5% and a yield to maturity of 6%. Which of the following is true of the prices of these bonds?

Select one:

a. Bond A's price is greater than Bond B's price by approximately $32

b. Bond A's price is greater than Bond B's price by approximately $62

c. Bond B's price is greater than Bond A's price by approximately $25

d. Bond B's price is greater than Bond A's price by approximately $50

e. The prices of both bonds are approximately the same

Question 5

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Which of the following comes closest to the value of a perpetuity that pays to the holder the amount of $100 beginning at the end of year 5 and then continues forever (in year 6, year 7, and so on without ever stopping). Use a required rate of return of 2%?

Select one:

a. $5,000

b. $4,619

c. $2,962

d. $2,137

e. $1,645